David Rosenberg on the Macro, Rates, Recession

This week the FOMC decided to hold the target interest rate steady at 525-550. Fed Funds Futures pricing data currently have a 95.2% probability that the Fed hold this interest rate level at the Dec 13 Fed meeting. And there is a 49.8% probability that the first 25 basis point cut arrives in May 2024.

The speed and rate of interest rate increases this year led consensus belief that a recession was imminent. Yet with the S&P up 14% YTD, it appears that the recession many predicted did not arrive this year.

Now the question becomes what can we expect in 2024. When will the impact of the quickest rate hikes in history start to be felt? Will the recession many expected in 2023 arrive at the beginning of 2024? How can a trader navigate such an environment?

David Rosenberg of Rosenberg Research joined the On The Tape podcast to share his views on these Macro questions.

I think that the lags are going to kick in very forcefully in the next several months. And the people that threw in the towel on the recession call are going to be putting it back on in the first half of the year.

If you go back historically, when the market starts to figure that the Fed is done raising rates, you get a near-term relief rally in the stock market. The current rally is nothing out of the realm of what we have seen historically. On average there is a 10-month lag between the last hike and the first cut. The last Fed hike was in July 2023 which means they start cutting rates in May.

The question then becomes why would they start to cut rates? It’s because the lags kick in and we get a recession, the recession crushes inflation. The Fed will see inflation going down, unemployment going up, all the thing they have wanted all along.

Everytime when the Fed cuts rates you get a kneejerk reaction. When the Fed cut rates in August of 2007, the market ripped, ripped. Then the question becomes why are they cutting rates? Because we had a bad recession staring us in the face. And the stock market doesn’t bottom until March 2009. So if you invite me again in a couple of months, the Fed may cut rates and the market is going to rip and we’re going to say look at the market ripping. I’m going to say the stock market is a kneejerk reaction. We’re just testing moving averages such as the 200 day.

The stock market is basically operating on sentiment and technicals.

Sentiment and technicals. A basic framework a swing trader can use to trade the market.

Sentiment on what the Fed is going to do. Technical levels (SMAs, EMAs) to identify your entry and exit points.